2026 Federal Estate Tax Exemption

Shelia discovered a devastating error just weeks after her husband, Robert, passed away. He’d meticulously drafted a codicil to his trust, increasing the bequest to their daughter, but never actually signed it. The loss of those few crucial signatures meant the codicil was invalid, triggering a far larger estate tax liability than they’d anticipated—a difference of over $300,000. This situation, unfortunately, isn’t uncommon, and it highlights the critical importance of not just having an estate plan, but ensuring it’s flawlessly executed.

Many of my clients in Temecula are understandably anxious about the potential for federal estate taxes, particularly with the ever-changing tax landscape. The good news is that the One Big Beautiful Bill Act (OBBBA) permanently established the Federal Estate Tax Exemption at $15 million per person ($30 million for couples) effective Jan 1, 2026. This eliminates the ‘2026 Sunset’ fear, though the top tax rate remains at 40% for assets exceeding this permanent threshold, which is now indexed annually for inflation.

However, simply meeting the exemption threshold isn’t always enough. Proper planning is vital to minimize potential tax burdens and maximize the inheritance your beneficiaries receive. It’s where my dual role as an Estate Planning Attorney and a CPA comes into play. Many attorneys lack a comprehensive understanding of the tax implications of estate planning decisions, and that can lead to missed opportunities—or, worse, unintended tax consequences.

For example, the “step-up in basis” is a cornerstone of estate tax planning. When assets are inherited, their cost basis is adjusted to the fair market value at the date of death. This means that when your heirs sell those assets, they only pay capital gains tax on the appreciation since the date of death, not the appreciation over your entire lifetime. A CPA’s expertise in valuation is critical here; an inaccurate valuation can significantly inflate the taxable estate and diminish the benefit of the step-up in basis.

What happens if my estate exceeds the 2026 exemption amount?

If your estate is projected to exceed the $15 million per person exemption, several strategies can be employed to mitigate estate taxes. These include gifting strategies, irrevocable life insurance trusts (ILITs), qualified personal residence trusts (QPRTs), and family limited partnerships (FLPs). Each of these tools has its own set of advantages and disadvantages, and the best approach will depend on your specific circumstances and goals.

How does Proposition 19 impact estate planning and taxes?

California’s Proposition 19 adds another layer of complexity. Under Proposition 19, heirs only keep a parent’s low property tax base if they move into the home as their primary residence within one year. Critically, for 2026, the tax-free ‘basis boost’ is capped at $1,044,586 over the original taxable value; any value exceeding this adjusted cap results in a partial reassessment even if the child moves in. We often integrate provisions within trusts to address this, potentially utilizing LLCs to hold real property and optimize tax benefits.

What about digital assets and estate planning?

In today’s digital world, digital assets – everything from online bank accounts to cryptocurrency to social media profiles – are a significant part of many estates. Per the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), custodians like Apple or Google are legally prohibited from granting executors access to the content of emails or private messages without ‘explicit written direction’ in the will or trust. Metadata (the ‘catalog’) may be accessible, but the private content remains locked without this specific legal trigger. This means clear instructions within your estate planning documents are essential to ensure your executor can properly manage your digital life.

What if I become incapacitated before my estate is settled?

Planning for incapacity is just as crucial as planning for death. Under both federal HIPAA and the California Confidentiality of Medical Information Act (CMIA), medical providers are strictly barred from sharing details with family unless a HIPAA Release is integrated into the Advance Healthcare Directive. Without this, a spouse may be forced to obtain an emergency court-ordered conservatorship just to speak with a surgeon. A comprehensive Advance Healthcare Directive, coupled with a Durable Power of Attorney, ensures your wishes are respected and your affairs are managed smoothly if you’re unable to do so yourself.

What are the implications of the Corporate Transparency Act for my estate?

The Corporate Transparency Act (CTA) impacts estates that own or control businesses, particularly LLCs. Under the Corporate Transparency Act (CTA), all non-exempt small businesses must maintain active BOI Reports with FinCEN. Upon the death of a member, the estate or successor has exactly 30 days from the date the estate is settled to file an updated report; failure to meet this window triggers non-waivable fines of $500 per day. It’s a detail many executors overlook, leading to potentially hefty penalties.

With over 35 years of experience as both an Estate Planning Attorney and a CPA, I bring a unique perspective to my clients’ situations. I don’t just draft documents; I craft comprehensive strategies tailored to your specific needs, ensuring your assets are protected, your family is provided for, and your wishes are honored. My goal is to prevent situations like Shelia’s, where a simple oversight can have devastating financial consequences.

What makes a California will legally enforceable when it matters most?

In California, a last will and testament is reviewed under probate standards that focus on intent, capacity, and execution. Clear drafting reduces ambiguity, limits misinterpretation, and helps families avoid unnecessary conflict during estate administration.

• Planning: Review future needs regularly.
• Law: Check legal requirements.
• Parties: Update personal information.

For California residents, understanding how intent, authority, and compliance interact is one of the most effective ways to protect family harmony and estate integrity. A will that anticipates probate scrutiny is far more likely to be honored as written and far less likely to become the source of unnecessary conflict.

Controlling Legal Standards Governing California Estate and Asset Transfers

• Probate & Court Procedure:
  California Courts – Wills, Estates, and Probate
  The official judicial branch guide for navigating the probate process; it provides updated 2026 checklists for determining if an estate qualifies for “Summary Probate” under the $208,850 personal property limit or the $750,000 primary residence threshold (AB 2016).
• Property Tax Reassessment (Prop 19):
  California State Board of Equalization (Prop 19)
  The definitive resource for understanding the “Parent-to-Child” reassessment exclusion; it outlines the strict one-year deadline for heirs to move into an inherited home as their primary residence to maintain the parent’s low property tax base.
• Advance Healthcare Planning:
  California Attorney General – Advance Health Care Directive
  Provides the official California statutory form and legal guidelines for appointing a health care agent; this resource emphasizes the necessity of combining a medical power of attorney with a HIPAA release to ensure doctors can communicate with family during an emergency.
• Federal Estate & Gift Tax:
  IRS Estate Tax Guidelines
  The authoritative federal portal for estate and gift tax reporting; this page reflects the permanent exemption of $15 million per person (effective Jan 1, 2026), effectively replacing the previously scheduled Tax Cuts and Jobs Act (TCJA) sunset.
• Digital Asset Access (RUFADAA):
  California RUFADAA Law (Probate Code §§ 870-884)
  Access the full statutory text of the Revised Uniform Fiduciary Access to Digital Assets Act; it explains why executors are legally barred from accessing encrypted accounts, email, or crypto-wallets unless the decedent provided explicit “prior consent” in their estate plan.